Does the Return on Investment Justify High College Costs?

President Obama sent a shot across the bow of higher education in his 2012 State of the Union Address when he said, "Let me put colleges and universities on notice: If you can't stop tuition from going up, the funding you get from taxpayers will go down." Was this a well-researched policy statement intended to increase the competitiveness of our nation, or an appeal to young voters and their parents during an election cycle?

Whatever the reason, it has started an active and heated dialog about the costs of higher education. Let me put my bias on the table: I believe deeply in the economic and human value of high-quality education at all levels. So, of course, this thinly-veiled threat of government intervention (price controls?) caught my attention. Yes, it was bound to happen sooner or later: just a few years ago, the escalating cost of healthcare was the public scapegoat. Higher education was due its turn at the political whipping post.

There is no sidestepping the fact that the cost of a college degree is a major financial stressor for most American families. Next to your home, a college education for your child is one of the most expensive "investments" you will likely ever make. So is it worth it?

Critics have actually begun to question the financial value of a college degree. The cost has indeed increased significantly over the years. But rather than just examining the cost, a better question would be to evaluate the return on the investment that this advanced education provides. Here the economics get a little murky, but under reasonable assumptions, a university degree still pays off handsomely. Some rough math provides insight: the "all in" sticker price for a four-year degree varies widely, from $75K at, say, Florida State to more than $200K at Harvard.

Typically, the costs to families are much less when aid and merit support are factored in. So what does this investment get you? Individuals with a Bachelor's degree can expect to earn $2.27M over their lifetimes, while those with only a high school diploma will earn $1.3M, according to US News.

Beyond the monetary value of a career aided in part by a college education is the experiential benefits that young adults get. I think the whole experience of leaving the nest, being responsible for their own schedules and work ethnic, meeting new people, making the rent or paying bills, etc. is equally as important to full-on adult development as the pure educational aspects of majoring in engineering or political science.

All of that said, the college experience, whether far away or at a local institution, should be every American's right. That's not to say it should be the only path since it might not fit everyone's needs. But it should be available to everyone and that means available at a reasonable cost. Some how the skyrocketing price tag on a college education doesn't sit well, even if you can pull off some fancy ROI calculations to show there's still a benefit over time.

Dean Orsak, thanks for the snapshot this latest White House policy plank. It resonates with me, especially in your comparison of a Florida State School to an Ivy League school, as it framed a personal family situation, which occurred just this month. My son and his girlfriend attend Florida Atlantic University, and are facing decisions about their direction after graduation in May.She had been offered two excellent choices, and deeply wrestled with her decision.The first was a paid internship right there at FAU, coupled with a full scholarship toward her doctorate in psychology; income coupled with low cost. The second was a letter of acceptance from Columbia University in NYC; an ivy league school reportedly ranked fourth in the nation in her discipline.However, the Columbia acceptance was just that – acceptance – and offered neither income from internship/fellowship, or tuition assistance of any kind.The cost was estimated at $160,000 for two years.Tough choice.Her mother urged that she follow her dreams, musing the Columbia opportunity as an honor and privilege.The former [FAU] was a guaranteed doctorate and a chance to start a career in a few years debt-free.I offered one simple mentoring comment on her behalf: "Consider ROI" [return on investment].In my 30 years in industry, I contend that while the choice of school is important, moreover it's the degree that opens the door, but the integrity of the person that makes or breaks. Which would you choose-?

Government involvement is the primary factor that drove the cost of education through the roof. Everything that the government gets involved with undergoes exponential inflation.

I almost completely disagree that college "should be every American's right". That is the thought process that leads to more government involvement, which will only serve to further escalate the price. Everyone already has "the right" to attend college. All you have to do is pay. The problem is, most people can't afford college, because government involvement has driven the cost out of sight.

When I went to college, it was relatively affordable. I got an Associates degree in Electrical Engineering for a grand total of $2K including books. (yes two thousand dollars), but that was before the government became heavily involved with college funding, quotas, etc.

Please name for me anything that has become more streamlined and cost effective because of government involvement.

If you want education to be affordable, get all governments 100% completely out of it, then watch free market forces bring the price back in line. Same applies to health care.

I'm not sure how can you pin the escalating costs of college education solely on government involvement. The biggest culprits for high cost are the private schools, particularly the Ivy League colleges where tuition is upwards of $50,000 a year (and I think that is the base sticker price). Maybe I'm naive, but what role would government play in encouraging these private, for-profit institutions to jack up the cost of their tuititions to the point where it's unaffordable for all but the wealthy, the ones unafraid to take on debt, or the lucky that happen to qualify for financial assistance?

@Jim: Thanks for sharing that personal story. I think you really raise a great point. We all aspire for our children to have the best opportunity, especially if they are gifted enough to have those elite doors opened for them. But the harsh reality of a trading up an Ivy League education for a mountain of debt isn't always the best choice.

My kids aren't college age yet, but these are the tough decisions I'm already starting to contemplate as I watch friends and family struggle with the financial burdens of making theirs and their kids dreams come true. I think you gave your son's girlfriend some pretty sound advice. I know plenty of Ivy educated, private schooled people who are able to spout off on topics I could never hope to master, but they aren't necessarily sitting any better when it comes to their careers and earning power.

I am not so naiive as to belive I can sway your thinking, but I would encourage you to carefully observe over the course of your life what happens when government gets involved in something. Keep a close eye on the health care system as an example. The government got into it in a big way over the last 40 years, but 2 years ago they put in place a fundamental takeover of the funding of the health care system. The government accounting office just reported yesterday that the cost estimate over the next 10 years has almost doubled since the program was passed 2 years ago. I can all but assure you that the price will redouble several more times over the next 10 years. Just watch it. There are no more free-market forces in the health care system.

With education, the government spent the last 30 years or so placing piles of money in front of the educational institutions in the form of earmarked savings plans for individuals, governmnet backed loans, tax credits and deductions, and direct financial aid. They don't need to "encourage" educational institutions to gather those piles. They only need to put the piles in front of them, which they have done.

If consumers had to finance their education without these government backed piles of money the prices would drop back in line with normal inflationary patterns due to market forces, and it wouldn't take long for it to happen.

Investing $100,000 over four years in order to gain $1.7 million over a lifetime (let's say 50 years) is about the same as putting the same amount of money in an investment which yields 6% interest compounded annually. That's a pretty decent investment, given that the risk is fairly low.

On the other hand, it depends on having $25,000 a year available to spend for a period of four years. There's the rub. For most people, this is a large fraction of their total income. In the meantime, they still have to meet the rest of their household expenses.

My solution, which I successfully applied to my own education and am now applying to my daughters' education, is to go to a community college for two years and then transfer to a four-year school for the next two.

Right now, tuition for a semester at my daughter's community college is about $1600. For comparison, a semester at a public university costs about five times that much. For a private university, it's about ten times as much. The savings over two years, including summer school, are about $35,000 compared to a public university and about $80,000 compared to a private one. That's not counting room and board, or any other costs.

Other benefits of community college include smaller class sizes, easier access to professors, more flexible class schedules, and a more diverse student body. Also, students who do well in community colleges can earn scholarships to four-year institutions, since they have a proven record of achievement.

I suspect that as more students and parents realize what a good deal community colleges are, they will exert a downward pressure on tuition at four-year institutions. Hopefully, this will bring tuition down to a level which average families can reasonably afford.

There are many factors involved in determining the financial value of a college education. One surprising statistic during the economic difficulties of the past fives years is that the unemployment rate for those with a college education was 4 percent -- as compared to 8 or 9 percent overall.

You only get one chance to go to college (at least as a young person right out of high school). Yes, schools are increasingly overpriced, which in turn wrecks the ROI analysis - unless you start a Facebook-like company at age 19. Regardless, you will never regret having graduated from a good school. I sidestepped the ROI issue by going to a good engineering school which was free, but now wants to charge. Can you guess what school it is?

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